Shares of Rio Tinto Limited (ASX: RIO) could be in store for a good day today following a release of the mining giant's annual results.
Here are the key takeaways from Rio Tinto's financial year ending 31 December 2016:
- Revenue fell $US 1 billion due to lower average commodity prices
- Underlying earnings (a.k.a normalised profit) rose 12% to $US 5.1 billion
- Capital expenditure on new projects fell 36% to $US 3 billion
- Net debt fell 30% to $US 9.6 billion
- A dividend of $US 1.25 per share will be paid in April 2017
- $US 4 billion of tax was paid, with $US 3 billion paid in Australia
Rio Tinto's CEO, Jean-Sébastien Jacques, said the result was a sign of their commitment to improve the financial position of the business while making targeted investment.
"Today's results show we have kept our commitment to maximise cash and productivity from our world-class assets, delivering $3.6 billion in shareholder returns while maintaining a robust balance sheet," he said. "At the same time, we strengthened the portfolio and advanced our high-value growth projects as we look to the future."
The multi-national mining heavyweight plans to generate $US 5 billion in extra cash flow over the next five years with productivity improvements. "Our value over volume approach, coupled with a robust balance sheet and world-class assets, places us in a strong position to deliver superior shareholder returns through the cycle."
The company is focused on three major projects, one in each of iron ore, copper and bauxite.
During the year, operating profit from Rio's Iron Ore and Energy & Minerals businesses rose as commodity prices recovered. However, the Aluminum and Copper divisions reported operating profit decreases of 10% and 24%, respectively.
Buy, Hold or Sell
Looking ahead, Rio is on track to make cost improvements of $US 2 billion by the end of 2017, with $US 5 billion of additional cash flow targeted before 2022. It expects to invest more in developing projects than it did this year and moderately increase its level of debt.
For shareholders, that appears very positive considering the company's ability to generate huge cash flows and pay a respectable dividend.
For buyers of shares, Rio Tinto has rallied from around $40 to over $68 in the past year, which arguably reflects today's results. Therefore, I think there are better stocks available to buy today.
